Final Ipo in India

8/4/2019 Final Ipo in India

1/81

Initial Public Offering In India

[Type text] Page 1

TABLE OF CONTENTS

Sr. No. Particulars Page No.

1. Executive Summary 2

2. Financial markets and IPO 4

3. Primary Market 6

4. IPO- Features 9

5. Trends 13

6. Pricing Of Issue 20

7. Book Building 22

8. Cost Of Issue 27

9. Brief Note on Intermediaries 29

10. SEBI and IPO 35

11. Marketing of IPO 46

12. Analysis of Biocon IPO 52

13. Prospectus TCS 63

14. Conclusion 78

15. Bibliography 80

16. Annexure 81


2/81


[Type text] Page 2

EXECUTIVE SUMMARY

When a business entity needs money the general course of action that it

follows is that it goes to the bank. However banks may not be ready to

provide huge finance for a long time especially if the returns are not fixed.

The best way to raise money is through offer of shares. The securities which

the companies issue for the first time to the public and other financial

institutions either after incorporation or on conversion from private to public

company is called INITIAL PUBLIC OFFERING or IPO. Raising

equity gives boost to economical development of the country.

Raising money through IPO is a very complex process. It requires analysis

and implementation of various commercial laws applicable to IPO-

Prospectus. These laws are Companies Act, Income Tax Act, FEMA,

Securities Contract Act and SEBI Guidelines on Disclosure and Investor

Protection. It is also necessary to implement circulars from time to time by

SEBI. The introduction of SEBI attracted Foreign Institutional Investors to

invest money in stock market in India. It has also helped Indian Companies

to offer securities in most scientific method to Indian and Foreign investors

Therefore to understand this complex subject, I decided to undertake studies

by this Project Report.

The basic objective of my study on IPO is mainly as under-

To analyze and evaluate the complex IPO process.To study and incorporate the legal requirements of an IPO.SEBI Norms and Guidelines.


3/81


[Type text] Page 3

Various aspects of IPO like cost, Involvement of intermediaries, pricingof an IPO.

Pricing of an issue through the Book-Building Method.Analysis of the Biocon IPO is the heart of the project.I have included the prospectus of the latest IPO-TATA Consultancy

Services in a compact form. I have given prospectus to explain

applicability of various laws and guidelines.

The limitations with this report are as under-

I have excluded guidelines and procedures relating to ADR/GDR toraise money by issuing securities abroad.

I have also excluded procedures relating to listing securities inForeign Stock Exchange

I have excluded provision relating to the stock invest option in theIPO-Application form.

If the company is making IPO just to get securities listed on StockExchange and make disinvestment promoters, then the money will

not come to company and pricing method followed will also be

different.

I have not covered how the IPO process is carried out ininternational markets.


4/81


[Type text] Page 4

FINANCIAL MARKETS AND THE IPO

The Financial Market is an amorphous set of players who come together to

trade in financial assets.

Financial Markets in any economic system that acts as a conduit between the

organizations who need funds and the investors who wish to invest their

money into profitable opportunity. Thus, it helps institutions and

organizations that need money to have an access to it and on the other hand,

it helps the public in general to earn savings.

Thus they perform the crucial function of bringing together the entries who

are either financially scarce or who are financially slush. This helps

generally in a smoother economic functioning in the sense that economic

resources go to the actual productive purposes. In modern economic systems

Stock Exchanges are the epicenter of the financial activities in any economy

as this is the place where actual trading in securities takes place.

Modern day Stock Exchanges are most of the centers to trade in the existing

financial assets. In this respect, they have come a long way in the sense that

these days, they act as a platform to launch new securities as well as act as

most authentic and real time indicator of the general economic sentiment.

The zone of activities in the capital market is dependent partly on the

savings and investment in the economy and partly on the performance of the


5/81


[Type text] Page 5

Industry and economy in general. In other words capital market constitutes

the channel through which the capital resources generated in the society and

made available for economic development of the nation.

As such, Financial Markets are functionally classified as having two parts,

namely,

1. The Primary Market2. The Secondary Market

Primary Market comprises of the new securities which are offered to the

public by new companies. It is the mechanism through which the resources

of the community are mobilized and invested in various types of industrial

securities. Whenever a new company wants to enter the market it has to first

enter the primary market.

Secondary Market comprises of further issues which are floated by the

existing companies to enhance their liquidity position. Once the new issues

are floated and subscribed by the public then these are traded in the

secondary market. It provides easy liquidity, transferability and continuous

price formation of securities to enable investors to buy and sell them with

ease. The volume of activity in the Secondary Market is much higher

compared to the Primary Market


6/81


[Type text] Page 6

PRIMARY MARKET-GENESIS AND GROWTH

When a business entity needs money the

general course of action that it follows is

that it goes to the bank. However banks may

not be ready to provide huge finance for a

long time especially if the returns are not

fixed. The best way to raise money is

through offer of shares and for this: PRIMARY MARKET is the answer

The Primary Market deals with the new securities which were previously not

tradeable to the public. The main function is to facilitate the transfer of

resources from savers to entrepreneurs seeking to establish or to expand and

diversify existing events. The mobilization of funds through the Primary

Market is adopted by the state government and corporate sector. In other

words the Primary Market is an integral part of the capital market of a

country and together with the securities market. The development of securityas well as the scope for higher productive capacity and social welfare

depends upon the efficiency of the Primary Market.

What is an IPO?

The securities which the companies issue for the first time to the public

either after incorporation or on conversion from private to public company is

called INITIAL PUBLIC OFFERING or IPO


7/81


[Type text] Page 7

GROWTH OF IPOs IN INDIA

HISTORYOF PRIMARYMARKET

Indian capital market was initiated with establishing the Bombay stock

exchange in the year 1875. At that time the main function of stock exchange

was to provide place for trading in the stocks. Now the exchange has

completed more than 25 years. It has undergone several changes.

Initially the IPO was called New Issue and the issues in the Primary

Market were controlled by CCI (Controller of capital issue). It was working

as a department of MOF (ministry of finance). There were very few issues

every year. CCI was highly conservative and hardly allowed any premium

issues. Also, the regulatory framework was inadequate to control several

issues relating to Primary Market. Therefore, in the year 1992 it was

abolished.

There was no awareness of new issues among the investing public. In fact,

during 1950s-1960s, the investment in stock market was considered to be

gambling. It was prerogative to highly elite business community to

participate in new issues. More than 99% of Indian population never

participated in any issue during CCI regime.

There was tremendous growth in capital market in U.S.A. and Western

Europe. In these markets they had established Security Exchange


8/81


[Type text] Page 8

Commission (SEC). It is most powerful autonomous body. The Government

of India realized the importance of a similar body in India for healthy and

fast growth of Capital Market. Thus Security Exchange Board of India

(SEBI) was established with headquarters in Mumbai in 1992.SEBI is the

most powerful body in India.

SEBI has come up with the guidelines for disclosures and investors

protection. SEBI has framed rules for various intermediaries like Merchant

Bankers, Underwriters, Brokers, Bankers, Registrars and Transfer Agents,

Depositories, Stock Exchanges etc. These rules are on the line of similar

rules in western world. This has attracted foreign institutional and individual

investors to invest money in India. This has resulted in exponential growth

of Capital Market in this last decade.

POPULARISING THE NEWISSUE.

Late Shri, Dhirubhai Ambani can be considered as Bhishmapita of new

issues, though initially he also had to struggle to get subscribers but he

always used innovative ides for marketing IPOs. It is said that investor never

lost money in his pricing methods. There are several incidences of the

common man participated in his issues, got allotment, sold shares and

created fabulous wealth for themselves. As on 31-12-2003, Reliance Group

has more than 3.5 million shareholders.


9/81


[Type text] Page 9

The first public offer of securities by a company after its inception is known

as Initial Public Offering (IPO). Going public (or

participating in an initial public offering or

IPO) is a process by which a business owned by

one or several individuals is converted in to a

business owned by many. It involves the offering

of part ownership of the company to the public

through the sale of equity securities (stock).IPO dilutes the ownership stake and diffuses corporate control as it provides

ownership to investors in the form of equity shares. It can be used as exit

strategy andfinance strategy.

As a financing strategy, its main purpose is to raise funds for the company.

When used as an exit strategy, existing investors can offload equity holdings

to the public.

REASONS FORGOING PUBLIC

To raise funds for financing capital expenditure needs like expansiondiversification etc.

To finance increased working capital requirementAs an exit route for existing investorsFor debt financing.


10/81


[Type text] Page 10

ADVANTAGES OF GOING PUBLIC

y Stock holder DiversificationAs a company grows and becomes more valuable, its founders often

have most of its wealth tied up in the company. By selling some of

their stock in a public offering, the founders can diversify their

holdings and thereby reduce somewhat the risk of their personal

portfolios.

y Easier to raise new capitalIf a privately held company wants to raise capital a sale of a new

stock, it must either go to its existing shareholders or shop around for

other investors. This can often be a difficult and sometimes

impossible process. By going public it becomes easier to find new

investors for the business.

y Enhances liquidityThe sock of a closely held firm is not liquid. If one of the holders

wants to sell some of his shares, it is hard to find potential buyers-

especially if the sum involved is large. Even if a buyer is located there

is no establishes price at which to complete the transaction. These

problems are easily overcome in a publicly owned company

y Establishes value for the firmThis can be very useful in attracting key employees with stock options

because the underlying stock have a market value and a market for

them to be traded that allows for liquidity for them.

y ImageThe reputation and visibility of the company increases. It helps to

increase company and personal prestige.


11/81


[Type text] Page 11

y Other advantagesAdditional incentive for employees in the form of the companies

stocks.

This also helps to attract potential employees.

It commands better valuation of the company.

Better situated for making acquisitions.

Creditability and image enhancement for the company.

DISADVANTAGES OF GOING PUBLIC

Cost of ReportingA publicly owned company must file quarterly reports with the

Securities and exchange Board of India. These reports can be costly

especially for small firms.

DisclosureManagement may not like the idea or reporting operating data,

because such data will then be available to competitors.

Self dealingsThe owners managers of closely held companies have many

opportunities for self-transactions, although legal they may not want

to disclose to the public.

Inactive market low priceIf a firm is very small and its and its shares are not traded frequently,

then its stock will not really be liquid and the market price may not be

truly representative of the stocks value.

Control


12/81


[Type text] Page 12

Owning less than 50% of the shares could lead to a loss of control in

the management.

Other disadvantagesThe profit earned by the company should be shared with its investors

in the form of dividend.

An IPO is a costly affair. Around 15-20% of the amount realized is

spent on raising the same.

A substantial amount of time and effort has to be invest. In an IPO,

the company has to disclose results of operations and financial

position to the public and the Securities and Exchange Board of India

(SEBI).


13/81


[Type text] Page 13

TRENDS IN IPO

PRIMARYREASONS FORACOMPANY GOING PUBLIC.

Most people label a public offering as a marketing event, which it typically

is. For the majority of firms going public, they need additional capital to

execute long-range business models, increase brand name, to finance

possible acquisitions or to take up new projects. By converting to corporatestatus, a company can always dip back into the market and offer additional

shares through a rights issue.

PERFORMANCEIN 90s

Let us have a look at the general development of the Primary Markets in the

nineties. There have been many regulatory changes in the regulation of

primary market in order to save investors from fraudulent companies. The

most path breaking development in the primary market regulation has been

the abolition of CCI (Controller of capital issues). The aim was to give the

freedom to the companies to decide on the pricing of the issue and this was

supposed to bring about a self-managing culture in the financial system. But

the move was hopelessly misused in the years of 1994-1995 and manycompanies came up with issues at sky-high prices and the investors lost

heavily. That phase took a heavy toll on the investors sentiment and the

result was the amount of money raised through IPO route.


14/81


[Type text] Page 14

1993-96: SUNRISE, SUNSET.

With controls over pricing gone, companies

rushed to tap the Primary Market and they did

so, with remarkable ease thanks to overly

optimistic merchant bankers and gullible

investors. Around Rs20000 crores were raised

through 4053 issues during this period. Some of the prominent money

mobilizes were the so called sunrise sectors-polyester, textiles, finance,

aquaculture. The euphoria spilled over to the Secondary Market. But reality

soon set in. Issuers soon failed to meet projections, many disappeared or

sank. Result: the small investor deserted both markets-till the next boom!

1998-2000: ICEON A HOT STREAK

As the great Indian software story played itself out, software stocks led a

bull charge on the bourses. The Primary Market caught up, and issues from

the software markets flooded the market. With big IPOs from companies in

the ICE (Information Technology, Communication and Entertainment)

sectors, the average issue price shot up from Rs.5 crore in 1994-96 to Rs.30

crore. But gradually, hype took over and valuations reached absurd levels.

Both markets tanked.

2001-2002-ALMOSTCLOSED

There were hardly any IPOs and those who ventured, got a lukewarm

response. A depressed Secondary Market had ensured that the doors for the


15/81


[Type text] Page 15

Primary Market remained closed for the entire FY 2001-2002.There were

hardly any IPOs in FY 2001-2002.

2002: QUALITYON OFFER.

The Primary Market boom promises to be different. To start with, the cream

of corporate India is queuing up, which ensures quality. In this fragile

market, issue pricing remains to be conservative, which could potentially

mean listing gains. This could rekindle the interest of small investors in

stocks and draw them back into the capital market. The taste of gains from

the primary issues is expected to have a spillover effect on the secondary

market, where valuations today are very attractive.

2003: IPO-IMPROVED PERFORMANCEOVERALL!

Even as the secondary market moved into top gear in 2003 the primary

market too scripted its own revival story, buoyed largely by the Maruti IPO

which was oversubscribed six and a half times. In 2003 almost all primary

issues did well on domestic bourses after listing, prompting retail investors

to flock to IPOs. All IPOs, including Indraprastha Gas and TV Today

Network which was oversubscribed 51 times showed the growing appetite

for primary issues.

Divi Labs hit the market in February followed by Maruti. Initially, the

Maruti share price was considered steep at Rs125 per share for a Rs5 paid-

up share. By the end of the year, the stock had climbed to over Rs355. Close

on the heels of Maruti, came the Uco Bank IPO, which attracted about 1mn


16/81


[Type text] Page 16

applicants. The primary issue of Indian Overseas Bank attracted about

4.5mn applicants and Vijaya Bank over Rs40bn in subscriptions. The last

one to get a huge response was Indraprastha Gas, which reportedly garnered

about Rs30bn. TV Todays public offer was expected to draw in excess of

Rs30bn. In overseas listings, the only notable IPOs were Infosys

Technology's secondary ADR offering and the dull debut of Sterlite Group

company Vedanta on the London Stock Exchange.

It was really Maruti Udyog that took the lead with its new issue in June. The

issue was heavily over-subscribed and by the middle of December the share

value appreciated 186 per cent. The near trebling of the investment in less

than 6 months inspired the retail investor who is now back again in the

market scouting for good scrips.

After the phenomenal success of Maruti issue, a number of companies have

approached the capital market and a lot more are waiting for SEBI approval.

SEBI has taken enough care to force companies to make relevant disclosures

for the investor to judge the quality of new issues. Besides, the companies

themselves have been careful not to over-price the shares. On the contrary,

some of the companies have deliberately under-priced them to let the issue

get over-subscribed and to let the investor share some of the capital gain

after listing. With the care taken by SEBI and the companies it is unlikely

that the experience of 1995 will be repeated.

In the financial year just ended, 23 companies tapped the primary market

and managed to garner less than Rs200bn.


17/81


[Type text] Page 17

The latest development in the primary market has been the Indian players

thirst for money satiating offshore

INITIAL PUBLICOUTBURST

Riding high on the market bull, companies are preparing to lap up investors

money through Initial Public Offerings (IPOs). The fundamentally good

economy makes us very positive about the initial public offering market.

Nearly 600 companies wish to raise over Rs50,000 Crore, for a variety of

reasonspublic sector units for capital (Power Finance Corporation and

National Thermal Power Corporation), residual sale (CMC and IBP),

divestment (ONGC and Gas Authority of India Ltd), banks for capital

(Central Bank of India and Punjab & Sind Bank), for market valuations

(Tata Consultancy Services), for venture capital exit (UTV and Secure

Meters), and for expansion (Biocon and NDTV).

Among these Biocon the first Indian Biotech company to come with an IPO

was oversubscribed by 33% and raised as much as Rs.315 Crore. Other

mega issues included TCS which was oversubscribed 5.46 times and raised

Rs.417 Crore. The much awaited government companies ONGC was

oversubscribed by 6 times and raised a whooping capital of Rs.1069.49

Crore another government company which was a huge success was IPCL

which too was oversubscribed by 1.18 times raising a capital of Rs.1010.45

Crore. The media company NDTV was oversubscribed 3 times its size.Other

IPOs to hit the market this year were Shah Petroleum (31.78 Crore) Crew


18/81


[Type text] Page 18

Bos Products (12.25 Crore) Texmaco (15.49 Crore) Vishal Export Overseas

(27 Crore).

A slew of IPOs have been lined up in the coming months from the public as

well as the private sector. The IPOs are estimated to raise Rs25,000-30,000

Crore. The sentiment for IPOs has been bolstered after the government

came out with fair pricing of its stake sale in IPCL.

Among the companies slated to come out with IPOs include: SET India,

Shoppers Stop, Central Bank of India, NTPC and Hutchinson Max Telecom.

Company Issue Date Issue Price Current

Price

% Change

Tata Consultancy

Services Ltd

05/08/2004 850 987.50 16.17

New Delhi

Television Ltd.

28/04/2004 70 87.55 25.07

DatamaticsTechnologies Ltd. 19/04/2004 110 136.20 23.81

Dishman

Pharmaceuticals &

Chemicals Ltd.

07/04/2004 175 459.60 162.62

Biocon Ltd 18/03/2004 315 503.85 59.95

Oil & Natural Gas

Corporation Ltd.

13/03/2004 712.50 703.20 -1.30

Power Trading

Corporation of India

Ltd.

08/03/2004 16 53.05 231.56

Gas Authority of

India Ltd.

05/03/2004 185.25 176.10 -4.93

Indian

Petrochemicals

Corporation Ltd.

27/02/2004 161.50 188.10 16.47


19/81


[Type text] Page 19

Patni Computer

Systems Ltd.

05/02/2004 230 311.75 35.54

T.V. Today Network

Ltd.

27/12/2003 95 105.80 11.36

Indraprastha GasLimited 05/12/2003 48 18.65 -61.14

Maruti Udyog

Limited

19/06/2003 125 360.20 188.16

Divi's Laboratories

Ltd.

17/02/2003 1301,136.00 773.85

Canara Bank 18/11/2002 25.00 126.75 407.00

Union Bank of India 20/08/2002 6.00 62.05 934.17

I-Flex Solutions Ltd. 05/06/2002 525.00 573.00 9.14

Punjab National

Bank 21/03/2002 21.00 253.20 1,105.71Moving Picture

Company (India)

Ltd.

19/02/2001 30.00 6.13 -79.57

Centurion Bank Ltd. 14/02/2001 2.00 6.85 242.50

Birla Corporation

Ltd.17/01/2001 9.00 114.25 1,169.44

Arvind Remedies

Ltd.06/01/2001 90.00 1.38 -98.47

Adlabs Films Ltd. 11/12/2000 115.00 89.10 -22.52Creative Eye Ltd. 03/11/2000 45.00 8.20 -81.78

Aztec Software &

Technology Services

Ltd.

02/11/2000 77.00 36.50 -52.60

Balaji Telefilms Ltd. 06/10/2000 120.00 90.55 -24.54

Aksh Optifibre Ltd. 18/07/2000 55.00 16.30 -70.36

Tele Data

Informatics Ltd.20/07/2000 15.00 41.95 179.67

Tata Teleservices(Maharashtra) Ltd 20/09/2000 2.00 18.05 802.50


20/81


[Type text] Page 20

PRICING OF ISSUE

Controller OfCapital IssueDuring the Controller of Capital Issue (CCI)

regime the issues were priced by the company

and approved by CCI. Generally the CCI was

very conservative and hardly allowed premium

issues.

Arrival of SEBIAfter the Arrival of SEBI free market policy is followed for pricing of

issue. Merchant Bankers are responsible for justifying the premium. The

company was allowed to give future profit projections. A company can

issue shares to applicants in the firm allotment category at higher price

than the price at which securities are offered to public. Further, an

eligible company is free to make public/rights issue in any denominationdetermined by it in accordance with the Companies Act, 1956 and SEBI

norms.

During the booming period stock market issues got oversubscribed

beyond imagination. Number of companies came in with stiff premium

and faced investor resistance. This resulted in cautious approach by the

merchant bankers and underwriters for taking up underwriting of the

future issues.


21/81


[Type text] Page 21

Deciding Premium by Bid SystemSince year 2000 SEBI has changed pricing formula. The promoters

cannot give future projections and merchant banker alone cannot decide

the pricing of IPO.

At present, 50%of the IPO is reserved for the wholesale investors and

50% is for the small investor. The Lead-Manager starts road show in

consultation with Institutional Investors. Then they call for bid at

recommended prices. Once, bids are received pricing is open for

discussion. The mean bid price is accepted and allocation is done. The

lead manager has to ensure full subscription of the full quota. Then the

price is declared in the newspapers. The retail investor has to follow this

price and submit application with cheque or demand draft. This part of

the issue should also be fully subscribed. If the issue is not underwritten

and subscription received is less than 90% then the IPO is considered as

fail and whatever fund has been received has to refunded. The company

looses money it has spent on IPO.

Thus pricing is most important and difficult aspects of IPO. However in the

present scenario most of the issues are priced by the book building method.

Accurate pricing is essential for the success of IPO.


22/81


[Type text] Page 22

BOOK BULIDING

THE LATEST AVTAAR OF PRICE DISOVERY

The basic motto of Book Building is that the market knows the best. Ever

since SEBI allowed companies with no profitability record to come up with

IPO via Book Building route, there has been a good rush of such issues.

What is BookBuilding?

Book Building is basically a capital issuance process used in Initial Public

Offering (IPO), which aids price and demand discovery. IT is a process used

for marketing a public offer of equity shares of a company and is a common

practice in most developed countries. Book Building is so-called because the

collection of bids from investors is entered in a "book". These bids are based

on an indicative price range. The issue price is fixed after the bid closing

date.

Persons Involved in the Book-Building Process

The principal intermediaries involved in the Book Building process are the

company; Book Running Lead Managers (BRLM) and syndicate members

who are intermediaries registered with SEBI and are eligible to act as

underwriters. Syndicate members are appointed by the BRLM.

How is the book built?

A company that is planning an initial public offer appoints a category-I

Merchant Banker as a book runner. Initially, the company issues a draft

prospectus which does not mention the price, but gives other details about


23/81


[Type text] Page 23

the company with regards to issue size, past history and future plans among

other mandatory disclosures. After the draft prospectus is filed with the

SEBI, a particular period is fixed as the bid period and the details of the

issue are advertised. The book runner builds an order book, that is, collates

the bids from various investors, which shows the demand for the shares of

the company at various prices. For instance, a bidder may quote that he

wants 50,000 shares at Rs.500 while another may bid for 25,000 shares at

Rs.600. Prospective investors can revise their bids at anytime during the bid

period that is, the quantity of shares or the bid price or any of the bid

options.

Basis ofDeciding the Final Price

On closure of the book, the quantum of shares ordered and the respective

prices offered are known. The price discovery is a function of demand at

various prices, and involves negotiations between those involved in the

issue. The book runner and the company conclude the pricing and decide the

allocation to each syndicate member.

Payment for the shares

The bidder has to pay the maximum bid price at the time of bidding based on

the highest bidding option of the bidder. The bidder has the option to make

different bids like quoting a lower price for higher number of shares or a

higher price for lower number of shares. The syndicate member may waive

the payment of bid price at the time of bidding. In such cases, the issue price

may be paid later to the syndicate member within four days of confirmation

of allocation. Where a bidder has been allocated lesser number of shares


24/81


[Type text] Page 24

than he or she had bid for, the excess amount paid on bidding, if any will be

refunded to such bidder.

Advantage of the Book Building process versus the Normal IPO

marketing process

Unlike in Book Building, IPOs are usually marketed at a fixed price. Here

the demand cannot be anticipated by the merchant banker and only after the

issue is over the response is known. In book building, the demand for the

share is known before the issue closes. The issue may be deferred if the

demand is less.

This process allows for price and demand discovery. Also, the cost of the

public issue is reduced and so is the time taken to complete the entire

process.

Features Fixed Price Process Book Building Process

Pricing Price at which the Security

is offered/allotted is known

in advance to the investor.

Price at which the Security

will be offered/allotted is not

known in advance to the

investor. Only an indicative

price range is known.

Demand Demand for the securities

offered is known only after

the closure of the issue.

Demand for the securities

offered can be known

everyday as the book is built.

Payment Payment if made at the

times of subscription

wherein refund is given

Payment only after

allocation.


25/81


[Type text] Page 25

after allocation

Guidelines for Issues to be made through 100% BookBuilding Route

SEBI had issued guidelines in October 1997 for book building which were

applicable for 100% of the issue size and for issues above Rs.100 Crore. The

guidelines were revised subsequently to reduce the limit to issues of Rs.25

crore to encourage the use of this facility. However, no issuer used this

facility. SEBI modified the framework for Book

Building further in October 1999 to make it more attractive. The modifiedframework does not replace the existing guidelines. The issuer would have

option to issue securities using book building facility under the existing

framework:

1. The present requirement of graphical display of demand at bidding

terminals to syndicate members as well as the investors has been made

optional.

2. The 15% reservation for individual investors bidding for up to 10

marketable lots may be merged with the 10% fixed price offer.

3. Allotment for the book built portions shall be made in demat form only.

4. The issuer may be allowed to disclose either the issue size or the number

of securities to be offered to the public.

5. Additional disclosure with respect to the scheme for making up the deficit

in the sources of financing and the pattern of deployment of excess funds

shall be made in the offer document.


26/81


[Type text] Page 26

Is the process followed in India different from abroad?

Unlike international markets, India has a large number of retail investors

who actively participate in IPOs. Internationally, the most active investors

are the Mutual Funds and Other Institutional Investors. So the entire issue is

book built. But in India, 25 per cent of the issue has to be offered to the

general public. Here there are two options to the company. According to the

first option, 25 per cent of the issue has to be sold at a fixed price and 75 per

cent is through Book Building. The other option is to split the 25 per cent on

offer to the public (small investors) into a fixed price portion of 10 per cent

and a reservation in the book built portion amounting to 15 per cent of the

issue size. The rest of the book built portion is open to any investor.


27/81


[Type text] Page 27

COST OF PUBLIC ISSUE.

The cost of public issue is normally between 8

and 12 percent depending on the size of the issue

and on the level of marketing efforts. The

important expenses incurred for a public issue

are as follows:

y Underwriting expenses: The underwriting commission is fixed at 2.5% of the nominal value (including premium, if any) of the equity

capital being issued to public.

y Brokerage: Brokerage applicable to all types of public issues ofindustrial securities are fixed at 1.5% whether the issue is

underwritten or not. The managing brokers (if any) can be paid a

maximum remuneration of 0.5% of the nominal value of the capital

being issued to public.y Fees to the Managers to the Issues: The aggregate amount payable as

fees to the managers to the issue was previously subject to certain

limits. Presently, however, there is no restriction on the fee payable to

the managers of the issue.

y Fees for Registrars to the Issue: The compensation to he registrars,typically based on a piece rate system, depends on the number of

applications received, number of allotters, and the number of

unsuccessful applicants.


28/81


[Type text] Page 28

y Printing Expenses: These relate to the printing of the prospectus,application forms, brouchers, share certificate, allotment/refund

letters, envelopes, etc.

y Postage Expenses: These pertain to the mailing of application forms, brochures, and prospectus to investors by ordinary post and the

mailing of the allotment/refund letters and share certificates by

register posts.

y Advertising and Publicity Expenses: These are incurred primarilytowards statutory announcements, other advertisements, press

conferences, and investors conferences.y ListingFees: This is the concerned fee payable to concerned stock

exchange where the securities are listed. It consists of two

components: initial listing fees and annual listing fees.

y Stamp Duty: This is the duty payable on share certificates issued bythe company. As this is the state subject, it tends to vary from state to

state.


29/81


[Type text] Page 29

BRIEF NOTE ON INTERMEDIARIES

The process of IPO is highly complex and its success is extremely importantfor the company. In this process it is important that all the intermediaries

should work cohesively and within a framework of law. Any serious error by

any intermediary can affect the IPO.

The following are the important intermediaries involved in the process-

MERCHANTBANKERS Eligibility criteria-SEBI issues an authorization letter to the finance

companies, which are eligible to work as merchant bankers. The eligibility

criteria depend on network and infrastructure of

the company. The company should not be engaged

in activities that are banned for merchant bankers

by SEBI. SEBI issues authorization letter valid for

3 years and the company has to pay necessary

fees. Such merchant banker can be appointed as lead manager for IPO.

Functions-Merchant banker can work as lead manager co lead manager

investment banker underwriter etc.

Responsibility-lead managers are fully responsible for the content and

correctness of the prospectus. They must ensure the commencement to the

completion of the IPO. Certain guidelines are laid down in section 30 of the


30/81


[Type text] Page 30

SEBI act 1992 on the maximum limits of the intermediaries associated with

the issue.

Size of the Issue No of Lead Managers

50 cr. 2

50-100 cr. 3

100-200 cr. 4

200-400 cr. 5

Above 400 cr. 1 or more as agreed by the

board

The number of co managers should not exceed the number of lead managers.

There can be only 1 adviser to the issue. There is no limit on the number of

underwriters.

Informational Asymmetry-in general merchant bankers know the market

better than the issuing company. They would exploit the superior knowledge

to under price issues. This makes their job easier and helps them earn the

goodwill of investors.

BROKERSAll the recognized stock exchange members are called brokers and thus any

member of a recognized stock exchange can become a broker to the issue.

The brokers can work as broker and underwriter or both. In India usually a

broker not only does his normal broking business buying and selling

securities for brokerage but also works as an underwriter. They can give


31/81


[Type text] Page 31

underwriting commitment in accordance with their net worth. A broker offer

marketing support, underwriting support, disseminates information to

investors about the issue and distributes issues stationary at retail investor

level. The brokers are governed by rules of SEBI and the respective stock

exchange.

The brokers are key to the success of the issue. The brokers appoint sub

brokers who are in direct contact with the investors.

UNDERWRITERSThe underwriter is the principle player in the IPO providing the firm with-

Reputation-as the underwriter is legally liable and because he has on going

dealing with the customers to whom he sells shares. The underwriter puts his

reputation on the line.

Finding investors-the underwriter first puts together a syndicate of other

underwriters to distribute the shares. The syndicate finds investors willing to

put their money into the company. This has serious implications. Will the

investors be institutional or private? Is the company widely held or are the

shares concentrated with just a few investors?

Experience-the underwriter knows the detail of the process better than any

other participant since issuing shares is one of their primary business

functions. Underwriters are the ones who provide proper guidance.

After market support-the underwriter protects investors and thus makes the

offering more attractive. It is important for the firm to have a clear


32/81


[Type text] Page 32

understanding with the underwriter exactly how much support he plans to

provide if the IPO is not fully subscribed and accordingly his underwriting

commission is fixed.

Future services-a good relationship with an underwriter can save time and

money in future dealings.

Pre offering assistance-the underwriter will conduct road shows with the

companys management distribute the prospectus and marketing of the

underwriters directly generates talk to potential investors about appropriate

pricing. Some part of the value that the potential shareholders attach to

shares.

Underwriting involves a commitment from the underwriter to subscribe to

the shares of a particular company to the extent it is under subscribed by the

public or existing shareholders of the corporate. An underwriter should have

a minimum net worth of 20 lakhs and his total obligation at any time should

not exceed 20 times his net worth. A commission is paid to the writers on

the issue price for undertaking the risks of under subscription. The

maximum rate of underwriting commission paid is as follows.

Nature of Issue On amount Devolving

on Underwriters

On amounts

subscribed by the

public

Equity shares

preference shares and

Debentures

2.5% 2.5%


33/81


[Type text] Page 33

Issue amount upto

Rs5 lakhs

2.5% 2.5%

Issue amount

exceeding %

2.0% 1.0%

The fees for underwriter and broker are decided by the company within the

maximum possible limit as fixed by the SEBI.

BANKERS TOTHEISSUE

Any scheduled bank registered with SEBI can be appointed as the banker to

the issue. Several commercial banks are working as bankers to the issue.

They get fees on amount collected by them.

There are no restrictions on the number of bankers to the issue. The main

function of banker involves collection of duly filed application forms with

money (cheque/drafts) maintains a daily report, transferring the proceeds to

the share application money collected with the application forms to the

registrar. The bank provides application forms to the investors. They accept

duly filled forms with cheque/ drafts. They prepare collection reports and

transfer funds and applications to the company/registrar.

REGISTRARANDTRANSFERAGENTSRegistration with SEBI is mandatory to take on responsibilities as a registrar

or share transfer agent. The registrar provides administrative support to the

issue process. Each agent is registered with SEBI. Hey have to maintain net

worth and infrastructure criteria. They have to renew their License


34/81


[Type text] Page 34

periodically. He collects all application from the bank and ensures

reconciliation of funds and of application amount and participates in process

of basis of allotment. If the IPO is oversubscribed they provide

computerized program for allotment. They manage refund orders and

allotment letters. They provide the final list of allotees to Lead Manager

ROC and stock exchange. If the company wants they also manage post issue

IPO functions relating to shareholders register for the company.

DEPOSITORIESSince the year 2000 its compulsory that all fresh issue of shares must be

made only in the dematerialized format (DMAT). The Depository institute

issues unique number of every IPO or company, when shares are allotted to

the company/registrar provides shareholders register to depository in

electronic form. Thus automatically all shareholders get allotment in their

DMAT account.

LEGALADVISOR.Normally the company for the purpose of IPO does this appointment. He is

responsible legal compliance of IPO process. There are other intermediaries

like Advertising Agents etc. but the company governs their role.


35/81


[Type text] Page 35

SEBI AND IPO

ELIGIBILITY NORMS

FORUNLISTEDCOMPANIES

It should have a pre issue network of a minimum amount of Rs1 crorein 3 out of the preceding 5 financial years. In addition the company

should compulsorily need the minimum network level during the two

immediately preceding years.

It should have a track record distributable profits as given in section205 of companies act 1956 for at least 3 years in the preceding 5 years

period.

The issue size (i.e. Offer + Form allotment + Promoters contributionthrough the offer document) should not exceed an amount equal to 5

times its pre issue worth.

FORLISTEDCOMPANIES

It should have a track record distributable profits as given in section205 of companies act 1956 for at least 3 years in the preceding 5 years

period.


36/81


[Type text] Page 36

It should have a pre issue network of a minimum amount of Rs1 crorein 3 out of the preceding 5 financial years with the minimum net

worth to be met during the immediately preceding 2 years.

SEBI NORMS

SEBI has come up with Investor Protection and

Disclosure Norms for raising funds through IPO.

These rules are amended from time to time to meet

with the requirement of changing market conditions.

Disclosure Norms.

y RiskFactor-The Company/Merchant Banker must specify the majorrisk factor in the front page of the offer document.

y General Risk.-Attention of the investor must be drawn on these riskfactors.

y Issuers Responsibility-It is the absolute responsibility of the issuercompany about the true and correct information in the prospectus.

Merchant Banker is also responsible for giving true and correct

information regarding all the documents such as material contracts,

capital structure, appointment of intermediaries and other matters.

y Listing Arrangement- It must clearly state that once the issue issubscribed where the shares will be listed for trading.


37/81


[Type text] Page 37

y Disclosure Clause- It is compulsory to mention this clause todistinctly inform the investors that though the prospectus is submitted

and approved by SEBI it is not responsible for the financial soundness

of the IPO.

y Merchant Bankers Responsibility- Disclaimer Clause the LeadManager has to certify that disclosures made in the prospectus are

generally adequate and are in conformity with the SEBI Guidelines.

y Capital Structure- The company must give complete informationabout the Authorised capital, Subscribed Capital with top ten

shareholders holding pattern, Promoters interest and their subscription pattern etc. Also about the reservation in the present issue for

Promoters, FII`s, Collaborators, NRI`s etc. Then the net public offer

must be stated very clearly.

y Auditors Report- The Auditors have to clearly mention about the past performances, Cost of Project, Means of Finance, Receipt of Funds

and its usage prior to the IPO. Auditor must also give the tax-benefit

note for the company and investors.

INVESTORPROTECTION NORMS.

y Pricing of Issue-The pricing of all the allocations for the presentissue must follow the bid system. The reservation must be

disclosed for different categories of investors and their pricing

must be specified clearly.


38/81


[Type text] Page 38

y Minimum Subscription- If the company does not receiveminimum subscription of 90% of subscription in each category of

offer and if the issue is not underwritten or the underwriters are

unable to meet their obligation, then fund so collected must be

refunded back to all applicants.

y Basis ofAllotment- In case of full subscription of the issue, theallotment must be made with the full consultation of the concerned

stock exchange and the company must be impartial in allotting the

shares.

y Allotment/Refund- Once the allotment is finalized, the refund of

the excess money must be made within the specified time limits

otherwise the company must pay interest on delayed refund orders.

y Dematerialisation ofShares-As per the provisions of theDepositories Act, 1996, And SEBI Rules, now all IPO will be in

Demat form only.

y Listing ofShares- It is mandatory on the part of the promoters thatonce the IPO is fully subscribed, and then the underlying shares

must be listed on the stock exchange. This provides market and

exit routes to the investors.

The above are the major Guidelines for the Investor Protection and

Disclosure Norms. The SEBI has provided rules for every possible situation.


39/81


[Type text] Page 39

SEBI GUIDELINES

IPO of Small Companies

Public issue of less than five crores has to be

through OTCEI (Over the Counter Exchange of

India) and separate guidelines apply for floating and listing of these issues.

Public Offer of Small Unlisted Companies (Post-Issue Paid-Up Capital upto

Rs.5 crores) Public issues of small ventures which are in operation for not

more than two years and whose paid up capital after the issue is greater than3 crores but less than 5 crores the following guidelines apply.

1. Securities can be listed where listing of securities is screen based.2. If the paid up capital is less than 3 crores then they can be listed on the

Over The Counter Exchange of India (OTCEI)

3. Appointment of market makers mandatory on all the stock exchangeswhere securities are proposed to be listed.

Size of the Public Issue

Issue of shares to general public cannot be less than 25%of the total issue.

Incase of IT, Media and Telecommunication sectors, this stipulation is

reduced subject to the conditions that

1. Offer to the public is not less than 10% of the securities issued.2. A minimum number of 20 lakh securities is offered to the public3. Size of the net offer to the public is not less than Rs.30 crores.


40/81


[Type text] Page 40

Promoters Contribution

1. Promoters should bring in their contribution including premium fullybefore the issue

2. Minimum promoters contribution is 20-25% of the public issue.3. Minimum lock in period for promoters contribution is five years.4. Minimum lock in period for firm allotment is three years.

Collection Centers for Receiving Applications

1. There should be at least 30 mandatory collection centers, whichshould include invariably the places where stock exchanges have

been established.

2. For issues not exceeding Rs.10 crores the collection centers shallbe situated at:-

y The 4 metropolitan centres viz. Mumbai Delhi CalcuttaChennai

y All such centres where stock exchanges are located in theregion in which the registered office of the company is

situated.

Regarding allotments of shares

1.Net Offer the general public has to be atleast 25% of the total issuesize for listing on a stock exchange

2. It is mandatory for a company to get its shares listed at the regionalstock exchange where the registered office of the issuer is located.

3. In an issue of more than 25 crores the issuer is allowed to place thewhole issue by book-building.


41/81


[Type text] Page 41

4. Minimum of 50% of the Net Offer to the public has to be reserved forthe investors applying for less than 1000 shares.

5. There should be atleast 5 investors for every 1 lakh equity offered.6. Quoting of PAN or GIR No. in application for the allotment of

securities is compulsory where monetary value of investment is

Rs.50000/- or above.

7. Indian development financial institutions and Mutual Fund can beallotted securities upto 75% of the issue amount.

8. A venture capital fund shall not be entitled to get its securities listedon any stock exchange till the expiry of 3 years from the date of

issuance of securities.

9. Allotment to categories of FIIs and NRIs/OCBs is upto maximum of24%, which can be further extended to 30% by an application to the

RBI-supported by a resolution passed in the General Meeting.

Timeframes for Issue and Post-Issue Formalities

1. The minimum period for which the public issue is to be kept openis 3 working days and the maximum for which it can be kept open

is 10 working days. The minimum period for right issue is 15

working days and the maximum is 60 working days.

2. A public issue is effected if the issue is able to procure 90% of thetotal issue size within 60 days from the date of the earliest closure

of the public issue.

3. In case of oversubscription the company may have he right toretain the excess application money and allot shares more than the

proposed issue, which is referred to as green-shoe option


42/81


[Type text] Page 42

4. Allotment has to be made within 30 days of the closure of thePublic issue and 42 days in case of Rights issue

5. All the listing formalities of a Public Issue have to be completedwithin 70 days from the date of closure of the subscription list.

Dispatch ofRefund Orders.

1. Refund orders have to be dispatched within 30 days of the closure ofthe issue.

2. Refunds of excess application money i.e. non-allotted shares have tobe made within 30 days of the closure of the issue.

Other Regulations

1. Underwriting is not mandatory but 90% subscription is mandatory foreach issue of capital to public unless it is disinvestment where it is not

applicable.

2. If the issue is undersubscribed then the collected amount should bereturned back

3. If the issue size is more than Rs500 crores, voluntary disclosuresshould be made regarding the deployment of funds and an adequate

monitoring mechanism put in place to ensure compliance.

4. There should not be any outstanding warrants for financialinstruments of any other nature, at the time of the IPO.

5. In the event of the initial public offer being at a premium and if therights under warrants or other instruments have been exercised within

12 months prior to such offer, the resultant shares will be not taken


43/81


[Type text] Page 43

into account for reckoning the minimum promoters contribution

further, the same will also be subject to lock-in.

6. Code of advertisement as specified by SEBI should be adhered to7. Draft prospectus submitted to SEBI should also be submitted

simultaneously to all stock exchanges where it is proposed to be

listed.

Restrictions on Allotments

1. Firm allotments to mutual funds, FII and employees are not subject toany lock-in period.

2. Within 12 months of the public issue no bonus issue should be made.3. Maximum percentage of shares, which can be distributes to

employees cannot be more than 5% and maximum shares to be

allotted to each employee cannot be more than 200.

Relaxation of entry norms for infrastructure companies

With a view channelise greater flow of funds to infrastructure companies,

SEBI granted a number of relaxations to infrastructure companies. These

included:

Exemption from the requirement of making a minimum public offerof 25 percent of securities and also from the requirement of

5shareholders per Rs.1 lakh of offer made.


44/81


[Type text] Page 44

Exemption from the minimum subscription of 90 per cent provideddisclosure is made about the alternate source of funding considered by

the company, in the event of under-subscription in the public issue.

Permission to freely price the offerings in the domestic marketprovided the promoter companies along with equipment supplier sand

other strategic investors subscribe to 50 percent of the equity at the

same price as the price offered to the public or at a price higher than

that offered to the public.

Permission to keep the issues open for 21 days to enable thecompanies to mobilize funds.

Exemption from requirement to create and maintain a debentureredemption reserve in case of debenture issues as provided in the

SEBIDisclosure & Investor Protection Guidelines

These concessions are available to them if these are appraised by a

Development Financial Institution, Infrastructure Development Finance

Corporation or Infrastructure Leasing and Financing Services Ltd. and there

is a minimum financial participation by them. The minimum participation of

the appraising agency, initially fixed at 10% of project cost, was reduced to

5%. Further, the minimum participation can be met by any of the appraising

agencies, jointly or severally, irrespective of whether they appraise the

project or not.

Eligibility norms for public issues/offers for sale by companies in the IT

Sector

Eligibility norms were modified to provide that a company in the ITSector going for IPO/offer for sale shall have track record of


45/81


[Type text] Page 45

distributable profits as per Section 205 of the Companies Act in three

out of five years in the IT business/from out of IT activities.

It can also access the market through the alternative route of appraisaland financing by a bank or financial institution.

The same conditions would apply also to a listed company which haschanged its name to reflect activities in IT sector.


46/81


[Type text] Page 46

MARKETING OF IPO

The role of marketing, and particularly promotion, in the pricing and trading

of Securities is fairly limited

PRELIMINARYREQUIREMENTS

The company has to complete all legal requirements, appoint all

intermediaries and once they get SEBI card (approval), the process of

marketing of IPO can commence.

TIMING OFIPO

This the most important factor for the success of IPO. If, secondary market

is depressed, if there is political unrest, if serious

international problems are prevailing then it is considered to

be negative factors for timing of IPOs. If these factors are

favorable then the Company must find out about the timing

of other prestigious IPOs. Normally in good times many

companies are crowding at the same time .This year more than 29 companies

are coming with IPOs. Around Rs.25,000-30,000crore of capital is going to

be raised this year.

A question of Timing

Timing the issue is critical as it determines the success or failure of an issueto a great extent.

During 1995-96, Primary Market boom, there was a period during which

there were two to three issues in a day. This is a dangerous situation.


47/81


[Type text] Page 47

The ideal time for marketing an issue is a boom in the Secondary Market,

peaceful socio-political-economic environment and at least two days gap

between two issues.

Marketing initial public offers (IPOs) through the secondary market

SEBI approved a proposal of marketing IPOs through the secondary

market. It proposes to use the existing infrastructure of stock exchanges

(terminals, brokers and systems), presently being used for secondary market

transactions, for marketing IPOs with a view to get rid of certain inherent

disadvantages faced by issuers and investors like tremendous load on

banking and postal system and huge costs in terms of money and time

associated with the issue process. This system would confirm to all extant

statutory requirements.

The investor would approach broker for placing an order for buyingshares of primary issues.

The registrar in consultation with merchant banker and the regionalstock exchange of the issuer will finalize the basis of allotment and

intimate the same to the exchanges who in turn shall inform the

brokers.

The brokers will advise the successful allottees to submit theapplication form and the amount payable towards the shares.

The broker will deposit the amount received in a separate escrowaccount for the primary market issue.

The clearing house of the exchange will debit the primary issueaccount of the broker and credit the issuers account.

Subsequently, the certificates would be delivered to the investors orthe depository account of the investor would be credited.


48/81


[Type text] Page 48

The securities can be listed on the stock exchange from the 15th dayfrom the closure of the issue as against 45-60days at present.

As investors will have to part with their funds only on successfulallotment, their funds are not unnecessarily blocked. This would also

ensure that refunds are done away with. The system seeks to reduce

the time taken presently for completion of the issue process, as well as

the cost of the issue.

The Effects ofMarketing on IPOs

An investment bankers marketing campaign for an IPO is critical. This

campaign, as much as anything that precedes or follows it, will determine

the success or failure of the IPO. The key is to stimulate investor demand for

the stock so that, the demand will exceed the supply. Through the marketing

effort, the underwriter attempts to create an imbalance in the supply/demand

equation for the issue, so that there are more buyers than sellers when the

stock is finally released for sale to the public.

Before a company gets to market through an IPO, it spends a fortune on

hype, Paperwork and publicity to create demand. The buzz is stirred up

before the shares are released. So you never get in cheap. And the ones that

are cheap are usually not worth holding five minutes.

To understand the sense of these statements one must understand the

relationship between the marketing of an IPO and its initial returns, and how

different parties benefit from this relationship. A securitys value is an

increasing function of the number of investors who know about the security.

Investor knowledge leads to greater value consequently; the efforts taken by

an investment banker to promote awareness in a firm can affect the valuation

of its stock by expanding the investor base.


49/81


[Type text] Page 49

The reputation of an investment banker could expand a firms investor base

at a lower cost than the firm can, since the promotional efforts of an

investment banker on behalf of the firm would be more creditable. The

efforts of an investment banker to promote an IPO through increased media

coverage will increase retail interest in that stock.

The effects of an investment bankers promotional efforts are not only

important for explaining the initial returns of some IPOs, but also for

explaining the rankings of investment bankers Promoting an issue

sufficiently to insure a run-up in its early aftermarket prices attracts further

investor interest catches the interest of analysts and helps to maintain or

expand the investor base of the stock

If the sole motivation of a road show were to sell IPOs to their regular

institutional investors and if those investors were to hold onto these stocks,

then there would be no motivation for an investment banker to do more than

a minimal amount of promotion since there would be no need to attract retail

investors in early aftermarket trading. However, research contradict that

these institutional investors do not hold onto the shares allocated to them

over the long-term, instead they sell their allocation, primarily to retail

customers in hot issues

GENERAL PROCEDUREFORMARKETING OFIPO

PRESS CONFERENCE

Promoters and Lead Managers call for press conference in each major

investment center. Reporters are briefed about the issue. They carry it as

news-item in their papers.


50/81


[Type text] Page 50

INVESTORS CONFERENCE

The prospective investors are called by

invitation. The Promoters and Lead Managers

give presentations. They reply to the

questions of the investors to boost their

confidence.

ROAD-SHOW

This is like the investors conference but normally is done abroad for

marketing ADR/GDR issues. It is an expensive process and requires a lot of

legal compliances. The company has to observe the rules of the concerned

country. However, road shows are becoming more and more popular in

India.

NEWSPAPER ADVERTISEMENT

The company releases statutory advertisements in leading newspapers. The

company has to publish abridges prospectus in leading newspapers. It is the

responsibility of the promoters to ensure that the

issuing company and their group companies should

not release any commercial advertisement, which may

influence the investors decision for investment.

PRINTING STATIONERY-PROSPECTUS

The company has to print approved prospectus and provide enough copies to

all intermediaries. If any investor asks for a copy of prospectus it must be

provided to him without any fees. Sufficient quantities should be maintained

at the registered office of the company and with the Lead Managers.


51/81


[Type text] Page 51

PRINTING APPLICATION FORMS

Sufficient number of application forms must be printed much before the

opening of the issue. Each form must contain abridged prospectus in SEBI

approved format. Sometimes different coloured forms are issued to FI, FII,

NRI and general public. It is compulsory to provide stationery to all

underwriters and brokers. They will arrange distribution to their sub-brokers

and other clients. Sometimes, company makes direct dispatch of forms to

prospective investors.


52/81


[Type text] Page 52

COMPANYBACKGROUND

Biocon is India's premier biotechnology company, established in 1978.

Headquartered in Bangalore, Biocon has evolved from an enzyme company

to a fully integrated biopharmaceutical enterprise, focused on healthcare.

Biocon's success has been characterized by an enduring set of corporate

values based on innovation, integrity, strong leadership and social

responsibility. As India's first and leading biotechnology company Biocon

extends its support to numerous community outreach and corporate

citizenship initiatives with special concentration in the areas of healthcare,

education and environment. Biocon aims to continuously create growth in

different areas of the company and will soon be the first company, globally

to manufacture human insulin using a Pichia expression system. In additionBiocon is positioned to be India's largest producer of human insulin and

India's first company to set up commercial production of monoclonal

antibodies.

PRE ISSUE ANALYSIS

Details of the Public Offer

The issue size includes 10,000,000 equity shares of Rs.5/-each at a price of

Rs. [270-315] the issue constitutes 10% of the fully diluted post issue paid

up capital.


53/81


[Type text] Page 53

Issue Opens on: March 11, 2004

Issue Closes on: March 18, 2004

Offer price Rs.315. The offer is being made through the 100% book building

process.

SALIENTFEATURES OFTHEISSUE

Issuer-

Biocon India owned by American International Group Inc is the largest

biotechnology enterprise in India was the first biotech company in India to

come up with an IPO. It has a market share of around

Size of issue-

The issue size includes 10,000,000 equity shares of Rs.5/-each at a price of

Rs [270-315] in cash aggregating to Rs [2700mn- 3150] mn. The issue

constitutes 10% of the fully diluted post issue paid up capital. The ceiling of

allocation of equity share capital to various bidders is as follows:

Qualified Institutional Bidders 60%

Non Institutional Bidders 15%

Retail Individual Bidders 25%

Issue Price

The offer is being made through the 100% book building process. The price

band was Rs [270-315]. The offer price was fixed at the higher end of the

price band at Rs315 per share of Rs 5 each.


54/81


[Type text] Page 54

Lead Manager to the Issue:

DSP Merrill Lynch Ltd, Kotak Company Capital Ltd., Karvy Consultants

Ltd, HSBC Securities and Capital Markets (India) Pvt Ltd.

Registrar to the issue:

Karvy Consultants Ltd

Bankers to the Issue-

HSBC, State Bank of India, Canara Bank

Listing-

BSE and NSE stock exchange

Competitive strengths-

Biocon Ltd is the largest biotechnology enterprise in India with presence in

biopharmaceuticals, enzymes, Custom research and clinical research

activities. The company believes in non infringing processes for the

manufacture of products targeted at the therapeutic categories of

cardiovascular, immunosuppressant, anti-diabetics and oncology.

Basis forAllotment

Discretionary in case of Qualified Institutional Buyers and proportionate in

case of Non-Institutional Buyers and Retail Investors.


55/81


[Type text] Page 55

Maximum and Minimum Bid size

For retail investors- The minimum bid for the Equity shares should be in

multiples of [] and the amount should not exceed Rs.50000.The maximum

bid should be in multiples of [] and should not exceed Rs.50000.

For Non-Institutional Buyers and Qualified Institutional Buyers- The

minimum bid for the Equity shares should be in multiples of [] and the

amount should exceed Rs.50000. The maximum bid should not exceed the

size of the issue.

Who can Apply

Wholesale investors-Public Financial Institutions as specified in the Sec 4A

of the Companies Act, FII`s registered with SEBI, Mutual Funds, Industrial

Development Corporation, insurance companies etc.

RetailInvestors- Resident Individuals, NRI`s and HUF`s in the name of the

Karta

Allotment mode

Compulsory demat mode

Valuation

Biocon Ltd is the largest biotechnology enterprise in India with presence in

biopharmaceuticals, enzymes, Custom research and clinical research

activities. Biocon is the largest Indian Biotechnology company in terms of

fiscal 2003 revenue according to Indias Association of Biotechnology Led

Enterprises. It is the first Indian Biotechnology company to come up with a

public issue.


56/81


[Type text] Page 56

The Total Consolidated Operating Income and Net Profit were Rs.2819.9

million and Rs422.3 million respectively in fiscal 2003. In the first 9 months

of fiscal year 2004 our Total Consolidated Operating Income and Net Profit

Rs.3977.4 million and Rs.949.4 million respectively

The scrip, currently available at the P/E of (23.1 26.9) x FY04P earnings

of Rs11.7. The P/E is relatively comparable to peer group P/E average of

25.1. Although Biocon is expensive at the current price, it is a good buy

taking into consideration its promising future prospects.

Scrip Details.

Market Capital (Rs .Cr.)

(at Min. Offer Price)

270-315

P/E (x) FY04 (annualized) 19.1-22.3

Market Capital/Sales (x) FY04 (annualized) 5.1-5.9

Ent.Val/EBIT(x) FY04 (annualized) 22.6-26.3

Div./Share (Rs.) FY04E -

Div Yield (%)FY04E


57/81


[Type text] Page 57

Peer Comparison

Objects of the Offer

Plans to expand capacity at Rs 400cr. Develop biological business Expand capability in drug business Leverage position in the export market Continue to target APIs for high value growth Launch branded formulations on the domestic market Grow business through strategic partnership and M&A

COMPANY RANK REVENUE

(Crore Rs)

Biocon India 1 255

Panacea Biotec 2 169.88

Wipro Health Science 3 98.55

Wockhardt 4 74

Haffkine Bio 5 72.90

Eli Lily 6 71.31

Nicholas Piramal 7 70.64

Krebs Biochem 8 64.16

Bharat Serums 9 58

Indian Immunologicals 10 55.31


58/81


[Type text] Page 58

ISSUE ANALYSIS

Performance Evaluation

Day One- 11March 2004,Biocon Ltd. IPO gets oversubscribed

The long awaited issue of Biocon opened on 11 March. The issue got

oversubscribed within five minutes of the opening.This is the first issue by a

biotechnology company; the company plans to list on the BSE and NSE.

Biocon had a fixed price band between Rs 270and Rs 315 per equity shareof a face value of Rs 5, for its IPO with most of the bids being submitted at

Rs 315, the upper end of the price band.

Day two-Biocon IPO gets stronger

The IPO of Biocon Ltd was oversubscribed 10.6 times on Thursday, when it

opened, according to its bankers.

Strong demand by institutional investors saw the issue get an unprecedented

four times the response for one crore shares of face value Rs 5 each within

five minutes of opening. The scrip was in demand

March 18 Biocon IPOAhitwith investors

The countrys first biotech IPO by Biocon India received a handsome

response from investors, with the issue being oversubscribed 33 times. The

company received bids for more than 330m shares versus about 10m on

offer, with most of the bids being submitted at Rs 315, the upper end of the

price band. Biocon IPO generates overwhelming response. Total demand in

excess of Rs.10,000 crores. There was large scale participation

by QIB`s, HNI`s and Retail Investors


59/81


[Type text] Page 59

POST ISSUE ANALYSIS

Biocon IPO generates overwhelming response

The success of Biocons IPO set the benchmark for future IPOs in the

sector. For it is the No.1 biotech company in the country and has strong

fundamentals. It is also the first biotech company to go public CRISIL,

Indias leading credit rating agency, has maintained its P1+ rating for the Rs

20 crore short-term debt programmes. Several biotech companies plan to go

public. Biocon, Shantha Biotechnics, Amreshwara Agri Bio, Bharat Biotech,

etc. are looking to go IPO.

Biocon with its first mover advantage is well positioned to grab the huge

opportunity in the global biopharma market once regulatory norms for

biotech are clearly stated by the USFDA for regulated markets in the next 6-

12 months. This will further boost the recent high growth rates in the

revenues and earnings. Also, the company is well positioned to build strong

relationships with existing global players by offering them contract research

and manufacturing service. At the higher end price of the offer band of Rs.

315, the stock is offered at a P/E of 22x on annualized earnings of Rs. 14.1

for FY04.


60/81


[Type text] Page 60

ADDITIONAL INFORMATION

Shareholding pattern

Share Holding

Pattern

Pre Offer Post

Offer

Kiran Mazumdar 44.05 39.64

John Shaw 0.78 0.70

Glentec International 23.55 21.19

AIG Asian

Opportunity Fund10.00 9.00

Others 21.62 19.47

Public - 10.00


61/81


[Type text] Page 61

Financials

(Rs.Crores) FY01 FY02 FY03 9MFYO4

Revenue 122.31 160.62 254.24 371.22

Other Income 0.21 3.33 0.76 0.66

Total Expenditure 91.1 124.91 189.99 253.77

PBIDT 32.49 40.02 65.53 118.68

Interest

Expenditure

4.56 4.69 4.90 1.21

Depreciation 6.2 7.59 11.71 9.81

PBT 21.73 27.74 48.92 107.66Tax- Current 3.56 4.04 8.90 20.17

Tax- Deferred 3.65 2.21 4.71 1.38

PAT 14.52 21.49 35.31 86.11

Share Capital 1.50 1.82 1.84 45.00

EPS (Rs.) at FV

Rs. 5.0

48.40 59.04 95.95 9.57

EBIDTAMargin 26% 24% 26% 32%

Bio pharmaceuticals contribute 81% of total turnover, enzymes 12% and rest

is contributed by customized research. For the first 9 months of FY04,

exports of biopharmaceuticals and enzymes accounted for56% of the total

turnover and grew sharply toRs.208.36 compared to Rs.110.08crs in the

previous full year, largely driven by exports to US and Europe. Better

realization from export resulted in operating margin growth of 7bps in

9MFY04 over


62/81


[Type text] Page 62

FY03. Robust product pipeline ensures sustenance of companys high

growth rate. It has plannedRs.400crs expansion over next three years.

The current price of a Biocon Share is Rs503. The stock has risen by 188%.

This shows that Biocon is a good buy and good profitable company which is

worth investing.


63/81


[Type text] Page 63

Registered Office: Bombay House, 24 Homi Mody Street, Fort, Mumbai

400001, India

Tel: (91 22) 5665 8282, Fax: (91 22) 5665 8080 Email: [email protected]

Public Issue of 55,452,600 Equity Shares of Re. 1 each for cash at a price of

Rs.[_ ] per Equity Share aggregating Rs.[_ ] million, consisting of a Fresh

Issue of 22,775,000Equity Shares by Tata Consultancy Services Limited and an Offer for Sale

of 32,677,600 Equity Shares by Tata Sons

GENERALRISK

Investment in equity and equity related securities involves a degree of risk

and investors should not invest any funds in this Offer unless they can afford

to take the risk of losing their investment. Investors are advised to read the

Risk Factors carefully before taking an investment decision in this Offer. For

taking an investment decision, investors must rely on their own examination

of TCS Limited and the Offer including the risks involved. The Equity

Shares offered in the Offer have not been recommended or approved by the

Securities and Exchange Board of India (SEBI) nor does SEBI guarantee

the accuracy or adequacy of this Red Herring Prospectus.

ISSUERS ABSOLUTERESPONSIBILITY

TCS Limited, having made all reasonable inquiries, accepts responsibility

for, and confirms that this Red Herring Prospectus contains all information


64/81


[Type text] Page 64

with regard to the Company and the Offer, which is material in the context

of the Offer, that the information contained in this Red Herring Prospectus is

true and correct in all material respects and is not misleading in any material

respect, that the opinions and intentions expressed herein are honestly held

and that there are no other facts, the omission of which makes this Red

Herring Prospectus as a whole or any of such information or the expression

of any such opinions or intentions misleading in any material respect.

LISTING

The Equity Shares are proposed to be listed on the National Stock Exchange

of India Limited (Designated Stock Exchange) and The Stock Exchange,

Mumbai and TCS Limited has received approvals from these stock

exchanges for the listing of its Equity Shares

BOOKRUNNING LEADMANAGERS (BRLMs)

JMMorgan Stanley Private Limited

141, Maker Chambers III,

Nariman Point, Mumbai 400 021

Tel.: (91 22) 1600 22 0004 / 5630 3030

Fax: (91 22) 5630 1694

Email: [email protected]

DSP Merrill Lynch Limited

Mafatlal Centre, 10th Floor,

Nariman Point, Mumbai - 400 021

Tel.: (91 22) 5632 8000

Fax: (91 22) 2204 8518


65/81


[Type text] Page 65

JP Morgan India Private Limited

Mafatlal Centre, 9th Floor,

Nariman Point, Mumbai - 400 021

Tel.: (91 22) 2285 5666

Fax: (91 22) 5639 3091

E-mail: [email protected]

REGISTRARTOTHEOFFER

Karvy Computershare Private Limited

Unit: TCS IPO

Karvy House, 46, Avenue 4, Street No. 1,

Banjara Hills, Hyderabad 500 034

Tel.: (91 40) 2331 2454, Fax: (91 40) 2331 1968

OFFERPROGRAMME

BID/OFFER OPENS ON JULY 29, 2004

BID/OFFER CLOSES ON AUGUST 5, 2004


66/81


[Type text] Page 66

PART 1

General Information

Public Issue of 55,452,600 Equity Shares of Re. 1 each for cash at a price of

Rs.[_ ] per Equity Share aggregating Rs.[_ ] million, consisting of a Fresh

Issue of 22,775,000

Equity Shares and an Offer for Sale of 32,677,600 Equity Shares by Tata

Sons

Limited and certain other shareholders of TCS Limited 5,545,260 Equity

Shares will be reserved in the Offer for subscription by employees and

directors in India of the TCS Division.The face value of the Equity Shares is Re. 1 and the Offer Price is [ _ ] times

of the face value. It is a 100% Book-Built Issue and the price band is Rs. 775

TO Rs. 900 per Equity Share of Re.1 each.

Authority for the Offer

The Fresh Issue for the Equity Shares in this Offer by TCS Limited has been

authorized by the resolution passed by the Board Of directors passed at their

meeting held on April 37, 1004 subject to the Companies Act. The

shareholders approved the Fresh Issue for the Equity Shares at the AGM of

the directors on May 5, 2004; a committee of the Board approved the Fresh

issue of 22,775,000 Equity Shares by TCS Limited at its meeting held on

June 9 2004.

Disclaimer Clause

As required a copy of the Red Herring prospectus has been submitted to

SEBI. Its is to be distinctly understood that the submission to SEBI should

not be deemed or construed that the same has been cleared by SEBI.SEBI


67/81


[Type text] Page 67

does not take any responsibility for the financial soundness of any scheme or

the project for which the offer to be made or for the correctness of the

statements made or opinions expressed in the Red Herring prospectus the

Book Running Lead Managers, JM Morgan Stanley Pvt Ltd. DSP Merrill

Lynch Ltd have certified that the disclosures made in the Red Herring

prospectus are generally adequate and in conformity with SEBI guidelines

and investor protection.

Filing

A copy of the Red Herring prospectus has been delivered to the registrar of

companies Maharashtra located at Mumbai .A copy of the Red Herring

prospectus has been filed with SEBI at Ground Floor, Mittal Court, A

Wing, Nariman Point Mumbai 400021

Listing

Applications have been made to NSE and BSE for permission to deal in and

for an official quotation of the Equity Shares. If the permissio

Final Ipo in India

Documents